2018 (12) TMI 21 - AT - Service Tax

Valuation - inclusion of reimbursement expenses in assessable value - Department was of view that the expenses which the appellant has got reimbursement from the service recipient were in the nature of freight, cartage, CFA, LOC, packing material, refreshment charges, drug licence charges, electric bills and telephone charges - suppression of taxable value - C&F agent service. Held that - On perusal of the type of expenditures which have been reimbursed to the appellant in certain items like drug licence charges, telephone charges incurred on behalf of the service recipient it appears that the appellant have got reimbursement of actual expenditure incurred by him on behalf of his principle (consignor) and here he has only worked as a facilitator and a pure agent on behalf of his principle and therefore prima facie the appellant has a strong case to claim non-inclusion of such reimbursed amount from the taxable income. However, the other charges which he got reimbursed whether that is includable in his taxable value or not as per the provision of Section 67 of Finance Act, 1994 can only be decided by examining whether such expenditure that has been incurred on behalf of principle consignor are essential expenditures for providing the service of Consignment and Forwarding agents service and thus includable in the taxable value or not, is to be decided by getting necessary information with regard to individual expenditure reimbursed to the appellant. Matter remanded to the Original Adjudicating Authority with a direction that the necessity of each expenditure has to be examine to ascertain whether such expenditure was necessary on the part of the appellant in performing his work or same was incurred by the appellant only on behalf of the service recipient and he worked only as a pure agent with regard to these expenditures - appeal allowed by way of remand.

Summary

Issues:
1. Whether certain reimbursed expenditures incurred by the appellant should be included in the taxable value of service for payment of service tax.
2. Whether the appellant can claim non-inclusion of reimbursed expenditures as a pure agent.
3. Interpretation of Section 67 of the Finance Act, 1994 and Rule 3 of Service Tax (Determination of Value) Rules, 2006.

Analysis:
1. The appellant, working as a C&F Agent, received reimbursement for various expenses from consignors. The department alleged that these reimbursed expenditures were not included in the taxable value of service for service tax payment, leading to a demand for service tax and penalties under Section 73 (1) of the Finance Act, 1994. The matter was adjudicated by the Assistant Commissioner and upheld by the Commissioner (Appeals), prompting the appellant's appeal before the tribunal.

2. The appellant argued that the reimbursed expenditures were incurred on behalf of the consignor and should not be included in the taxable value of service. They claimed to have acted as a pure agent, merely facilitating the expenses on behalf of the consignor. The appellant cited CBEC instructions and relevant case law to support their contention.

3. The tribunal considered the provisions of Section 67 of the Finance Act, 1994, and Rule 3 of Service Tax (Determination of Value) Rules, 2006. Section 67 outlines the valuation of taxable services for service tax charging, including the gross amount charged for the service provided. The tribunal noted that the determination of whether the reimbursed expenditures should be included in the taxable value depended on the necessity of each expenditure for providing the service. As the details regarding the necessity of these expenditures were not available in the record, the tribunal remanded the matter to the Original Adjudicating Authority for further examination.

4. The tribunal directed the Adjudicating Authority to assess the necessity of each expenditure to determine if it was essential for providing the service or incurred solely on behalf of the consignor, with the appellant acting as a pure agent. The appellant was instructed to cooperate fully in the reassessment process. Consequently, the tribunal allowed the appeal by way of remand, awaiting a fresh decision based on the examination of individual expenditures and their relevance to the service provided.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the tribunal's decision, emphasizing the legal interpretation of relevant provisions and the necessity of further examination before reaching a final conclusion.